Ford said today that it had returned to profit in north America for the first time in over four years, a milestone for the carmaker, which has lost billions of dollars in one of the toughest periods in its history.

The carmaker reported group-wide earnings of $1.1bn (£670m) for the third quarter and raised its forecasts, suggesting the company would be "solidly profitable" in 2011, instead of merely breaking even as previously predicted. The company lost more than $14.6bn last year.

The United States has officially emerged from recession and there was further evidence of a gathering improvement with figures showing that manufacturing had expanded at its fastest rate in more than three years during October. But the improvement at Ford, a bellwether name in American industry, was of special significance, indicating that the business might finally have turned the corner. Alan Mulally, chief executive, said the results showed the company was making "tremendous progress".

The carmaker, which lost $2.8bn in the same quarter last year, said the better performance was driven by gains in market share, reduced costs and the "cash-for-clunkers" programmes run by a number of governments to stimulate sales of new cars. The north American car and truck division posted a pre-tax profit of $357m, compared with a loss of $2.6bn a year ago, its first quarter in the black since the beginning of 2005. Profits in Europe rose to $193m from $69m. Market share in the US was up 2.2% to 15% and in Europe reached 9.2%, its highest level in 10 years.

The company also said it had moved into positive cash flow of $1.3bn during the quarter, having burned through $4.7bn in the first half. "That's a huge deal," said the chief financial officer, Lewis Booth. Ford shares were 9% higher in early trade.

Ford has managed to survive without a government bailout, unlike its rivals General Motors and Chrysler, which were both forced to file for bankruptcy. But the company still faces challenges, including an ongoing dispute with the United Auto Workers union over pay and conditions.

In the near term, Ford said sales are expected to suffer in Europe, Germany in particular, as the government incentive schemes come to an end. The company also noted that recovery in the US and the UK economies was expected to be slow.

The company has cut $4.6bn of costs in the first nine months of the year, exceeding previous targets of $4bn from job cuts and improved productivity – the company has shed more than 50,000 jobs since 2005 and shut 17 plants. Mulally has sold off luxury brands, including Land Rover and Jaguar, and drastically reduced the number of vehicle models produced by Ford.

Revenue in the quarter dropped $800m to $30.9bn, largely due to its financial services arm making fewer loans.